Like other qualified plans, these need a written plan document and investments to fund. A written plan document must be established and distributed to all employees notifying them of the plan and of all pertinent details, in language they can understand.
Plans must be established by December 31 of the year for which contributions will be made, and, since the contributions come from the employer for both of these, the employer has at least 8 months of the following year to meet funding requirements.
Money Purchase plans are pensions with defined contributions rather than defined benefits, but they have minimum funding requirements just like defined benefit plans. Section 412 contains more details about minimum funding requirements.
To learn more information about the difference, see “What’s the Difference between a Defined Benefit Plan and a Defined Contribution Plan?”
Employers can use prototype plans, such 401(k)s that include money purchase or profit sharing plans, which have already been scrutinized for compliance with all applicable tax code and employment regulations.
The financial companies that design such plans and package them for employers will update the plan language to reflect legislative changes, and may even file the Form 5500 (found here) for the employer, which can be cumbersome.
If I Want to Establish a Money Purchase/Profit Sharing Plan, Do I Have to Establish One for All Owners of My Business?
If I Want to Establish a Money Purchase/Profit Sharing Plan, Do I Have to Establish One for All Employees of My Business?
What are Articles of Incorporation?
What are Articles of Partnership?
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